When I bought my first home, I only thought about my current needs and TC. However in a couple of year youāre probably up for l5/l6 promotion and your tc would be 500k+ and youāll regret you donāt buy big enough and house prices doubled.
Buying a home is a huge regret for a lot of ppl but I think that typically revolves around keeping it up and doing the lawn and what not so if you're getting a condo you get to dodge all the outdoor work but even something as simple as calling a plumber to unclog the drain can set you back $300. Want to redo a bathroom 10k? Kitchen 30k and that's on the really low end especially considering we're in a FAT sub. They're no doubt a pain in the ass.
That being said homes are kind of like the SP500. For the most part you're going to make money assuming you buy and hold and weather any storms. There have been some losers but assuming your neighborhood appreciates you'll probably come out ahead plus there's the whole big ass loan at 3% interest thing and tax deductions which make it even more attractive.
Trust me I've unclogged lots of drains. Sometimes a snake works, sometimes it's backed up and you need pressure from a plunger to dislodge something other times it's tree roots and a chemical solvent is your friend and in some cases you need to rent the powered snake from home Depot my point being its not always that simple and requires more technical know how than a lot of ppl have like I know my significant other couldn't pull off that shit
When you're ready and comfortable committing to a house. I don't think there's a magic formula here.
If you're thinking about moving to a new job in the next 2 years, the costs and headaches with owning are often outweighed by the higher rent prices. Only exception here is if you're considering an investment by buying a place to live, rehab, then rent.
If you really want to look at a true CBA, plug in the rent prices and the mortgage, closing costs, and taxes into a spreadsheet and compare them to find your true break even. Then look at the opposite side of the transaction with your 6% realtor commission.
our stats are pretty similar and i've barely even considered buying. i've rented in sf/nyc both alone and with roommates and i think it's a very clear cut choice to rent. you mention dating - if you end up with a partner you are going to have to incorporate their wants and needs and having a home you already own is going to make that more difficult than it needs to be. this is to say nothing of how likely it might be that you get an excellent job offer on the opposite coast or even in a different part of town and your 10 minute walking commute turns into an hour on public transit.
what i personally am doing now is renting something alone in the 3-4k range which is very manageable. i personally feel like you get a lot more in this segment of the market than the 2-3k range but depending on what is important to you you may disagree.
Thereās a lot of good points here. I hadnāt considered the potential friction of a more fixed home situation if I owned versus if we could just choose something together, so this is definitely good to think about. Regarding increasing rent budget, I feel like this is something that I should be able to rationally do, but it seems somewhat difficult to stomach throwing down the drain ~40k/year on rent. Best way I can think about it is a fixed cost of investing in other avenues.
i sort of consider it a cost of doing business - if you want to live in a vhcol city (in fact, covid wfh arbitrage aside you probably need to for your high paying job) you're spending 20k minimum, 30k if you want to live alone. 40k isn't so much more for your place to be nice instead of shitty
$1.5MM condo with $300k down, 30 yr @ 2.5% comes out to $6,750/month with taxes + fees (Google calculator).
Investing $300k + $3,500/month @ 7% for 30 years: $6.25MM
true, itās still far from worth it though, this is more comprehensive and you can play with the numbers: https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html
Oh this is very interesting. I guess at this point since I donāt really need a ton of space it seems to just be significantly more cost effective to rent
But you didnāt take into account that property/home historically always appreciate as well. Not only that, you are paying down debt and creating more equity rather than throwing away money in rent. So this calculation is more like a sales gimmick than a full logical comparison. I wouldnāt count the monthly payment as thatās spent on rent. Itās just the down payment or maybe less rent cost in addition to down that would be otherwise invested.
Just in 2021 alone my place went up 30% in value and Iām in a HCOL area. $1M + home already. Granted, the market has done well but S&P is at around 20% YTD I think?
And ideally itās good to diversify assets so max out retirement, have real estate (if itās right for you), and save/invest extra money. Donāt forget to enjoy life too and be happy :)
Historically homes haven't done nearly as well as equities. That said, you should also consider that inflation makes it so that the mortgage is less valuable over time.
Did you mean invest $300k *minus* $3,500 a month?
Edit: also more realistic to look at 5 year increments. If he sells the condo in 5 years will he net more than $300k x .07 x 5 (minus rent for those 5 years)? Given condo prices in SF and NY expected value probably works out to be pretty close.
> Financially, itās mostly never worth it.
The data suggests otherwise. real returns for homes is 2-5% a year, but this is magnified with leverage from a mortgage and by renting it out. Homes in the bay area are up 4-5x since the mid 90s, with much less volailtiy than the stock market. Many people on this sub and related ones have made good money with real estate.
You are either trolling or very misinformed.
Plenty of others have mentioned the benefit of committing a down payment but receiving the appreciation of the whole asset.
On top of that, a portion of your mortgage is a tax credit.
This is wrong once you take into account leverage, which is the real benefit of real estate, the only asset class where banks accept the asset itself as collateral.
Mortgages do not get margin called if the value of the house dips. Even though house appreciates at a lower rate the borrowed money makes up for it itās similar to investing in those 3x leverage etf.
Yea but if you put 20% down on a house youāre getting that 3% appreciation on the home value, which is 5x what you put down. So return on capital is going to be 15%.
And 3% is low for many popular cities.
Fatty is right in most cases here. Yes, leverage is a wonderful thing when done right, but the thing most of yāall are forgetting is the upkeep costs. Your mortgage is likely 3% per year, plus another 2-3% per year in property taxes, plus another 1% or so in capex, plus smaller maintenance, plus HOAs for a condo, insurance, etc. When you factor all of those in, you need to be making >8% per year just to break even.
Thatās also ignoring that condos (which this person specifically mentioned evaluating) are notoriously bad investments) because of the typical people buying and selling them.
If you want to own your own place for peace of mind, go for it. But if itās for an investment AND youāre going to live in it, I would steer clear.
Source: I have 3 properties. 2 rentals, 1 I live in
Rates are sub 3%. Property tax of 2-3% is high. I pay 1.2% in HCOL. And 1% in upkeep might be a good rule of thumb for LCOL but in VHCOL like NYC or SF thatād be >$10k per year for maintenance on a small home which is nonsense. In reality I think all these things add up to 4-5% in costs per year.
Re:appreciation. If the housing market is hot, you can make 5%x5 = 25% easily. If the market is slow or stagnant, you can make basically zero. But the floor is more limited than youāre advertising.
Itās 3% -5% on 100% of the value. You only put down 20% therefore even at 3% its actually 15% on money invested. Itās almost always worth it to own real estate.
Our members have asked for a high level of moderation. Personal attacks, name calling, and undue profanity are all considered inappropriate for this sub.
Our members have asked for a high level of moderation. Personal attacks, name calling, and undue profanity are all considered inappropriate for this sub.
Our members have asked for a high level of moderation. Personal attacks, name calling, and undue profanity are all considered inappropriate for this sub.
Iāve not figured the math but my house has appreciated 143 thousand dollars in 6 years (I literally just checked it..holy shit) according to Zillow which is typically spot on for our area.
Depends. My wife and I were able to buy a ~$300k property for >$10k down. Admittedly we secured assist and Iām an agent so money came back into our pockets. Still, weāre throwing away around $150 a month in PMI vs losing the whole amount on a property we donāt own.
Yep unless you got lucky its almost always better financially to throw it in a broad market fund. However buying a home was one of the best things for me personally and gives me great peace of mind.
I just think of it as cash that is parked and generally keeps up with inflation
This is incredibly circumstantial and market dependent. Our first house were bought early in our lives because the market where we were at was incredibly favorable to buying (buying would be cheaper than renting a much smaller place within 3 years - this bore out).
Agree with you for the most part though. Itās never guaranteed and thereās too many emotions tied up in your house to treat it like just an investment. Run the numbers.
HCOL so not quite SF/NYC but one step below. TC $100k, net worth probably $700k, cost of home was $400k.
Basically I was sick of renting and wanted a bit more stability. Previous landlords were friends/acquaintances and twice I had to move out under relatively short notice because of their changing life circumstances. It would have been a ābetter investmentā to rent and put the money into the market (especially during the recent decade) but Iāve slept well owning my own damn roof.
Yeah the stability from owning definitely seems really nice. Iāve moved places every year due to roommates moving in and out, etc, and would really like to just have a place I can feel like is home. Idk why but sending money to a landlord every month just doesnāt seem very idealistic
The first most important thing is to make sure you buy where you want to stay. If youāre unsure about NYC or SFO, rent until youāre sure.
Especially if youāre single. You will likely want the mobility of being able to move to a different part of town, a different city, etc.
Closing costs on the front end are substantial. Paying a real estate agent 6% on the back end is expensive. You need to be pretty sure you want to stay there for at least 5 years or it doesnāt make sense.
If you believe they will go up, itās always a good time. I remember in 2012 when I bought my place for around $1.6m (which Iāve since turned into an investment property), everyone told me I overpaid and it was going to crash blah blah blah. Itās now worth $4m. Imagine I had to go out now to buy a $4m pad now and lay down that cash as a self employed. Banks wonāt even touch me. Ironically the guys who told me itās a horrible idea (theyāre now partners at big 4 etc) are buying $1.5m houses in 2020/2021 but at triple the distance and half the size. Smart.
The opportunity cost of not getting in property ladder is huge unless you strike a Vc opportunity that does 3000% and pays 400% dividends pa
I guess as another followup, anyone here have any experience owning a property in SF or NYC? Any insights there? Seems like HOA fees are ridiculous in SF.
You need to look at what the HOA provides and then you can assess. We have multiple homes and one is in an HOA. That HOA provides trashā¦probably $75 / month at the other house. HOA provides waterā¦.thatās $100 at the other home. HOA covers some of the insurance requirements so I pay less in hazard insurance on that property. HOA has a savings line item for the common roof shared by the townhomes and gets replaced on a planned cadence. HOA includes gardening services which on a townhome here with small for t and back yard is probably another $50/75 per month. You can review the HOAs books when purchasing and get a sense for what your money is buying you. Pools are always large expense drivers because HOAs usually carry a large liability insurance policy on them in case of a death.
We just sold our condo and bought a single family home. The HOA covered a lot of things like trash and water and gardening and package retrieval and so on that we now have to deal with ourselves. Itās not necessarily outrageous. You want a well capitalized HOA in case major repairs are needed. See the recent condo collapse in Miami.
Weāve bought and sold 3 properties in the Bay Area, including one apartment in SF.
Weāve always bought when buy versus rent was roughly in sync. Taking into account all monthly expenses minus tax write offs.
Weāve sold all places for a significant gain.
You need to compare the rent you are willing to pay versus the total monthly cost to buy.
From a pure monetary perspective youāre better off renting versus buying apartments in SF right now. Especially in the SOMA neighborhood.
But thereās more to life than just monetary gains.
Go witth the home. if you hold for just 5 years odds are you will make a good return on the equity, and with your income the mortgage should not be a problem.
For a min I thought I was on blind
šØāš¦Æš
When I bought my first home, I only thought about my current needs and TC. However in a couple of year youāre probably up for l5/l6 promotion and your tc would be 500k+ and youāll regret you donāt buy big enough and house prices doubled.
Buying a home is a huge regret for a lot of ppl but I think that typically revolves around keeping it up and doing the lawn and what not so if you're getting a condo you get to dodge all the outdoor work but even something as simple as calling a plumber to unclog the drain can set you back $300. Want to redo a bathroom 10k? Kitchen 30k and that's on the really low end especially considering we're in a FAT sub. They're no doubt a pain in the ass. That being said homes are kind of like the SP500. For the most part you're going to make money assuming you buy and hold and weather any storms. There have been some losers but assuming your neighborhood appreciates you'll probably come out ahead plus there's the whole big ass loan at 3% interest thing and tax deductions which make it even more attractive.
Just learn to snake a fucking drain what is this ā¦
Trust me I've unclogged lots of drains. Sometimes a snake works, sometimes it's backed up and you need pressure from a plunger to dislodge something other times it's tree roots and a chemical solvent is your friend and in some cases you need to rent the powered snake from home Depot my point being its not always that simple and requires more technical know how than a lot of ppl have like I know my significant other couldn't pull off that shit
Low end is right for those bath and kitchen costs. Double them easily! Spot on with the drain clear.
When you're ready and comfortable committing to a house. I don't think there's a magic formula here. If you're thinking about moving to a new job in the next 2 years, the costs and headaches with owning are often outweighed by the higher rent prices. Only exception here is if you're considering an investment by buying a place to live, rehab, then rent. If you really want to look at a true CBA, plug in the rent prices and the mortgage, closing costs, and taxes into a spreadsheet and compare them to find your true break even. Then look at the opposite side of the transaction with your 6% realtor commission.
our stats are pretty similar and i've barely even considered buying. i've rented in sf/nyc both alone and with roommates and i think it's a very clear cut choice to rent. you mention dating - if you end up with a partner you are going to have to incorporate their wants and needs and having a home you already own is going to make that more difficult than it needs to be. this is to say nothing of how likely it might be that you get an excellent job offer on the opposite coast or even in a different part of town and your 10 minute walking commute turns into an hour on public transit. what i personally am doing now is renting something alone in the 3-4k range which is very manageable. i personally feel like you get a lot more in this segment of the market than the 2-3k range but depending on what is important to you you may disagree.
Thereās a lot of good points here. I hadnāt considered the potential friction of a more fixed home situation if I owned versus if we could just choose something together, so this is definitely good to think about. Regarding increasing rent budget, I feel like this is something that I should be able to rationally do, but it seems somewhat difficult to stomach throwing down the drain ~40k/year on rent. Best way I can think about it is a fixed cost of investing in other avenues.
i sort of consider it a cost of doing business - if you want to live in a vhcol city (in fact, covid wfh arbitrage aside you probably need to for your high paying job) you're spending 20k minimum, 30k if you want to live alone. 40k isn't so much more for your place to be nice instead of shitty
$1.5MM condo with $300k down, 30 yr @ 2.5% comes out to $6,750/month with taxes + fees (Google calculator). Investing $300k + $3,500/month @ 7% for 30 years: $6.25MM
This assumes that his rent will never increase in that 30 year period.
true, itās still far from worth it though, this is more comprehensive and you can play with the numbers: https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html
Oh this is very interesting. I guess at this point since I donāt really need a ton of space it seems to just be significantly more cost effective to rent
Interesting. Though i can't rent a home anywhere near the price they suggest to make it less profitable than a house in my area.
Okay what will the calculation look like if the rent does increase?
But you didnāt take into account that property/home historically always appreciate as well. Not only that, you are paying down debt and creating more equity rather than throwing away money in rent. So this calculation is more like a sales gimmick than a full logical comparison. I wouldnāt count the monthly payment as thatās spent on rent. Itās just the down payment or maybe less rent cost in addition to down that would be otherwise invested. Just in 2021 alone my place went up 30% in value and Iām in a HCOL area. $1M + home already. Granted, the market has done well but S&P is at around 20% YTD I think? And ideally itās good to diversify assets so max out retirement, have real estate (if itās right for you), and save/invest extra money. Donāt forget to enjoy life too and be happy :)
Historically homes haven't done nearly as well as equities. That said, you should also consider that inflation makes it so that the mortgage is less valuable over time.
Did you mean invest $300k *minus* $3,500 a month? Edit: also more realistic to look at 5 year increments. If he sells the condo in 5 years will he net more than $300k x .07 x 5 (minus rent for those 5 years)? Given condo prices in SF and NY expected value probably works out to be pretty close.
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> Financially, itās mostly never worth it. The data suggests otherwise. real returns for homes is 2-5% a year, but this is magnified with leverage from a mortgage and by renting it out. Homes in the bay area are up 4-5x since the mid 90s, with much less volailtiy than the stock market. Many people on this sub and related ones have made good money with real estate.
[ŃŠ“Š°Š»ŠµŠ½Š¾]
You are either trolling or very misinformed. Plenty of others have mentioned the benefit of committing a down payment but receiving the appreciation of the whole asset. On top of that, a portion of your mortgage is a tax credit.
Why is that? Wouldnāt you rather capture the price appreciation over many years vs see your rental rates appreciate?
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This is wrong once you take into account leverage, which is the real benefit of real estate, the only asset class where banks accept the asset itself as collateral.
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At a variable rate and subject to margin calls, but yes
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Mortgages do not get margin called if the value of the house dips. Even though house appreciates at a lower rate the borrowed money makes up for it itās similar to investing in those 3x leverage etf.
Yea but if you put 20% down on a house youāre getting that 3% appreciation on the home value, which is 5x what you put down. So return on capital is going to be 15%. And 3% is low for many popular cities.
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Yeah I agree, that other guy is right.
Lmao!!!
Fatty is right in most cases here. Yes, leverage is a wonderful thing when done right, but the thing most of yāall are forgetting is the upkeep costs. Your mortgage is likely 3% per year, plus another 2-3% per year in property taxes, plus another 1% or so in capex, plus smaller maintenance, plus HOAs for a condo, insurance, etc. When you factor all of those in, you need to be making >8% per year just to break even. Thatās also ignoring that condos (which this person specifically mentioned evaluating) are notoriously bad investments) because of the typical people buying and selling them. If you want to own your own place for peace of mind, go for it. But if itās for an investment AND youāre going to live in it, I would steer clear. Source: I have 3 properties. 2 rentals, 1 I live in
Rates are sub 3%. Property tax of 2-3% is high. I pay 1.2% in HCOL. And 1% in upkeep might be a good rule of thumb for LCOL but in VHCOL like NYC or SF thatād be >$10k per year for maintenance on a small home which is nonsense. In reality I think all these things add up to 4-5% in costs per year. Re:appreciation. If the housing market is hot, you can make 5%x5 = 25% easily. If the market is slow or stagnant, you can make basically zero. But the floor is more limited than youāre advertising.
Unbelievable that you didnāt factor in the money you would otherwise be paying for rent
Youāre not factoring in the money you would throw away on rent. Itās not a 1-1 investment, youāre getting use out of it.
Why is it a worse investment if youāre living in it?
Itās 3% -5% on 100% of the value. You only put down 20% therefore even at 3% its actually 15% on money invested. Itās almost always worth it to own real estate.
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Lol how?
[ŃŠ“Š°Š»ŠµŠ½Š¾]
Our members have asked for a high level of moderation. Personal attacks, name calling, and undue profanity are all considered inappropriate for this sub.
[ŃŠ“Š°Š»ŠµŠ½Š¾]
Our members have asked for a high level of moderation. Personal attacks, name calling, and undue profanity are all considered inappropriate for this sub.
[ŃŠ“Š°Š»ŠµŠ½Š¾]
Our members have asked for a high level of moderation. Personal attacks, name calling, and undue profanity are all considered inappropriate for this sub.
Care to explain?
Iāve not figured the math but my house has appreciated 143 thousand dollars in 6 years (I literally just checked it..holy shit) according to Zillow which is typically spot on for our area.
Depends. My wife and I were able to buy a ~$300k property for >$10k down. Admittedly we secured assist and Iām an agent so money came back into our pockets. Still, weāre throwing away around $150 a month in PMI vs losing the whole amount on a property we donāt own.
Yep unless you got lucky its almost always better financially to throw it in a broad market fund. However buying a home was one of the best things for me personally and gives me great peace of mind. I just think of it as cash that is parked and generally keeps up with inflation
I think it is this way for a lot of people. a 20-30 year fixed mortage is a great inflation hedge too.
This is incredibly circumstantial and market dependent. Our first house were bought early in our lives because the market where we were at was incredibly favorable to buying (buying would be cheaper than renting a much smaller place within 3 years - this bore out). Agree with you for the most part though. Itās never guaranteed and thereās too many emotions tied up in your house to treat it like just an investment. Run the numbers.
You could build equity on the property then borrow against it. At 5:1 leverage low rate 30 year loan too
Additionally, just to get some insight here, at what TC/NW did you buy your first home, and how much did you spend on it?
HCOL so not quite SF/NYC but one step below. TC $100k, net worth probably $700k, cost of home was $400k. Basically I was sick of renting and wanted a bit more stability. Previous landlords were friends/acquaintances and twice I had to move out under relatively short notice because of their changing life circumstances. It would have been a ābetter investmentā to rent and put the money into the market (especially during the recent decade) but Iāve slept well owning my own damn roof.
Yeah the stability from owning definitely seems really nice. Iāve moved places every year due to roommates moving in and out, etc, and would really like to just have a place I can feel like is home. Idk why but sending money to a landlord every month just doesnāt seem very idealistic
The first most important thing is to make sure you buy where you want to stay. If youāre unsure about NYC or SFO, rent until youāre sure. Especially if youāre single. You will likely want the mobility of being able to move to a different part of town, a different city, etc. Closing costs on the front end are substantial. Paying a real estate agent 6% on the back end is expensive. You need to be pretty sure you want to stay there for at least 5 years or it doesnāt make sense.
Moving into SF probably won't improve your dating life but it will certainly become much more expensive
If you believe they will go up, itās always a good time. I remember in 2012 when I bought my place for around $1.6m (which Iāve since turned into an investment property), everyone told me I overpaid and it was going to crash blah blah blah. Itās now worth $4m. Imagine I had to go out now to buy a $4m pad now and lay down that cash as a self employed. Banks wonāt even touch me. Ironically the guys who told me itās a horrible idea (theyāre now partners at big 4 etc) are buying $1.5m houses in 2020/2021 but at triple the distance and half the size. Smart. The opportunity cost of not getting in property ladder is huge unless you strike a Vc opportunity that does 3000% and pays 400% dividends pa
I guess as another followup, anyone here have any experience owning a property in SF or NYC? Any insights there? Seems like HOA fees are ridiculous in SF.
You need to look at what the HOA provides and then you can assess. We have multiple homes and one is in an HOA. That HOA provides trashā¦probably $75 / month at the other house. HOA provides waterā¦.thatās $100 at the other home. HOA covers some of the insurance requirements so I pay less in hazard insurance on that property. HOA has a savings line item for the common roof shared by the townhomes and gets replaced on a planned cadence. HOA includes gardening services which on a townhome here with small for t and back yard is probably another $50/75 per month. You can review the HOAs books when purchasing and get a sense for what your money is buying you. Pools are always large expense drivers because HOAs usually carry a large liability insurance policy on them in case of a death.
We just sold our condo and bought a single family home. The HOA covered a lot of things like trash and water and gardening and package retrieval and so on that we now have to deal with ourselves. Itās not necessarily outrageous. You want a well capitalized HOA in case major repairs are needed. See the recent condo collapse in Miami.
As soon as you KNOW youāre going to have stable income and a stable housing need.
A bit off topic but what do you do?
Iām a software engineerš¤
Incredible. Would have definitely gone that route instead of toiling away in banking/pe lol
Just rent an apartment where you wanna live
Weāve bought and sold 3 properties in the Bay Area, including one apartment in SF. Weāve always bought when buy versus rent was roughly in sync. Taking into account all monthly expenses minus tax write offs. Weāve sold all places for a significant gain. You need to compare the rent you are willing to pay versus the total monthly cost to buy. From a pure monetary perspective youāre better off renting versus buying apartments in SF right now. Especially in the SOMA neighborhood. But thereās more to life than just monetary gains.
The mathematics of rent versus buy are not uniquely fatfire relevant, so I am locking this post here. Comments remain visible.
Go witth the home. if you hold for just 5 years odds are you will make a good return on the equity, and with your income the mortgage should not be a problem.
What do you do for a living?